Prospects bright for Norway’s economy

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Norwegian economists agree that New Year prospects are bright for the country’s economy in 2019. They predict economic growth of 2 percent, low interest rates, lots of activity in the oil and oil service sectors and even a “perfect” real estate market.

Despite intense construction activity in Oslo and elsewhere, most local economists don’t fear a meltdown and rather predict a “perfect” real estate market in 2019.  PHOTO: newsinenglish.no/Nina Berglund

“Oil investments will shoot up, and that yields positive impulses for the rest of the economy too,” Erica Blomgren, chief strategist at SEB, told newspaper Dagens Næringsliv (DN). She thinks 2019 will be even better than 2018, when the Norwegian economy recovered from the oil price collapse in 2014.

The strength of the Norwegian economy will make it “less sensitive” to more negative developments globally, she said. Many economists are seriously worried about prospects for the world economy this year, which already has been battered by turbulent markets tied to US President Donald Trump’s trade war. Norway may be spared, even though its stock market can be dragged down by other worldwide declines, with the country’s Oil Fund hit as well. DN reported on Thursday that the oil fund had suffered at least a paper loss of around NOK 5.3 billion on its stake in computer firm Apple alone.

Major investment in Norway’s oil sector, however, has fortified belief in Norway’s own economy. Even though oil is under pressure because of climate and environmental concerns, its rebound is good for Norwegian business. Norway’s macroeconomy, according to DN, hangs together with the resurgence in the oil industry.

Strong economic growth and a tight labour market will also likely have three major consequences for Norwegians’ wallets:

*** Incomes are expected to rise by 3 percent on average, the biggest rise in six years.

*** Two expected interest rates hikes will make it more expensive to borrow money.

*** A stronger Norwegian krone will make it less expensive for Norwegians to travel abroad.

Blomgren is among those who think the Norwegian currency will strengthen in 2019. It’s been at very weak levels recently, with one US dollar costing nearly NOK 9 earlier this week, a euro costing NOK 9.90 and a British pound costing just over NOK 11.

If Blomgren is correct, a euro will cost NOK 9.2 by the end of 2019, with the krone gaining 7 percent in value. The rise, Blomgren told DN, will be fueled “first and foremost because the fundamental drivers will be even stronger next year.”

Some analysts agree, with Kjetil Olsen of Nordea Markets expecting a euro to cost just NOK 9. Kjetil Martinsen of Swedbank, however, thinks the krone will remain weak, with a euro costing around NOK 9.7 through the year.

Norwegians, meanwhile, will likely have more money to spend next year because of higher wage growth. “Even if interest rates go up, most everyone will have more money,” Olsen told DN.

‘A perfect real estate market’
Higher rates aren’t expected to have much negative effect on the real estate market either. Despite brisk residential development activity, economists don’t foresee any overproduction of new housing units.

“The net increase in supply has been moderate in recent years, in fact historically low,” Carl O Geving of the national real estate brokers’ organization Norges Eiendomsmeglerforbund (NEF). “In 2018, growth was back at normal levels, and that affects supply and demand.”

He thinks concerns about too many housing units in Oslo are over-exaggerated. There will be more housing units available in Oslo this year, but with a “relatively good” increase in the population, the increase in supply won’t have any dramatic effects. In fact, Geving suggested, the market will be more healthy, with buyers allowed more time to evaluate properties and not pressured into bidding wars.

An expected addition of 3,000 housing units on the market will “balance” the market, he thinks.

“It can become a perfect market, with a good balance between supply and demand,” Geving told DN. “Buyers will be there and sellers will get good prices, but not fantastic prices. Sellers will need to accept that price levels won’t be much higher than in recent years.”

newsinenglish.no/Nina Berglund